[Federal Register Volume 62, Number 109 (Friday, June 6, 1997)]
[Notices]
[Pages 31103-31104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14745]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 971-0060]


CVS Corporation; Revco D.S., Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

-----------------------------------------------------------------------

SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before August 5, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary 
of the Secretary, Room 159, 6th St. and Pa. Ave., N.W., Washington, 
D.C. 20580.

FOR FURTHER INFORMATION CONTACT:
William J. Baer, Federal Trade Commission, H-374, 6th and Pennsylvania 
Ave, NW., Washington, DC 20580. (202) 326-2932. George S. Cary, Federal 
Trade Commission, H-374, 6th and Pennsylvania Ave, NW, Washington, DC 
20580. (202) 326-3741.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of sixty (60) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the accompanying complaint. An electronic copy of the 
full text of the consent agreement package can be obtained from the 
Commission Actions section of the FTC Home Page (for May 29, 1997), on 
the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A paper 
copy can be obtained from the FTC Public Reference Room, Room H-130, 
Sixth Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580, 
either in person or by calling (202) 326-3627. Public comment is 
invited. Such comments or views will be considered by the Commission 
and will be available for inspection and copying at its principal 
office in accordance with Section 4.9(b)(6)(ii) of the Commission's 
Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an agreement containing a proposed Consent Order 
from CVS Corporation and Revco D.S. Inc. (collectively, ``the 
respondents'') under which the respondents would be required to divest 
a total of 114 Revco retail drug stores in the state of Virginia to 
Eckerd Corporation, a subsidiary of J.C. Penney Company, or to another 
Commission-approved purchaser, and certain pharmacy assets related to 
six Revco retail drug stores in the Binghamton, New York metropolitan 
area to Medicine Shoppe, a subsidiary of Cardinal Health, or another 
Commission-approved purchaser. The agreement is designed to remedy the 
anticompetitive effects resulting from CVS's proposed acquisition of 
Revco.
    The proposed Consent Order has been placed on the public record for 
sixty days for reception of comments by interested persons. Public 
comment is invited regarding all aspects of the agreement including the 
proposed divestitures to Eckerd Corporation and Medicine Shoppe. 
Comments received during this period will become part of the public 
record. After sixty days, the Commission will again review the 
agreement and the comments received and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
Order.
    The proposed complaint alleges that the proposed acquisition, if 
consummated, would violate Section 7 of the Clayton Act, as amended, 15 
U.S.C. Sec. 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. 
Sec. 45, in the market for the retail sale of pharmacy services to 
third-party payors in the State of Virginia and the Binghamton, New 
York, metropolitan area.
    The retail sale of pharmacy services to third-party payors refers 
to prescription drugs sold by retail outlets such as drug store chains, 
independent drug stores, food stores and mass merchandise stores to 
third-party payors, which include insurance carriers, health 
maintenance organizations, preferred provider

[[Page 31104]]

organizations, and corporate employers. Third-party payors provide 
retail pharmacy service benefits to their beneficiaries, typically 
through intermediaries known as pharmacy benefit management (``PBM'') 
firms that create and administer retail pharmacy networks on behalf of 
third-party payors, whereby third-party payor beneficiaries may go to 
any pharmacy participating in the network to have prescriptions filled. 
In establishing these pharmacy networks, third-party payors generally 
rely on competition among large pharmacy chains to keep the cost of 
pharmacy services competitive. In markets where only a small number of 
pharmacy chains compete, third-party payors may pay higher rates for 
pharmacy services. Where a single pharmacy chain controls a large share 
of pharmacy locations in a given area, the chain is able to extract 
higher prices.
    For purposes of assessing competitive harm in the market for the 
retail sale of pharmacy services to third-party payors, both states and 
metropolitan statistical areas may be appropriate geographic areas. 
Many third-party payors require coverage for their beneficiaries 
throughout a state or just in certain metropolitan areas where the 
majority of their beneficiaries reside. While the geographic areas in 
which to assess the potential competitive harm of a proposed 
acquisition depend on where particular third-party payors' 
beneficiaries reside, states and MSAs are close proxies for such plan-
by-plan analysis.
    CVS's proposed acquisition of Revco will give the combined entity a 
dominant position both in the state of Virginia and in the Binghamton, 
New York, metropolitan area. As a result, the complaint alleges that 
third-party payors would be unable cost-effectively to assemble 
pharmacy networks that did not include CVS or Revco stores, and 
therefore, CVS would be able to increase prices for the retail sale of 
pharmacy services to third-party payors. The complaint also alleges 
that timely entry in the market for the retail sale of pharmacy 
services to third-party payors in these geographic markets on the scale 
necessary to offset the competitive harm resulting from the combination 
of CVS and Revco is unlikely.
    The proposed Consent Order would remedy the alleged violations by 
requiring divestitures to restore the lost competition that would 
result from the acquisitions. Under the proposed Consent Order, the 
respondents would be required to divest 114 Revco drug stores in 
Virginia to Eckerd or to a Commission-approved purchaser. The proposed 
Consent Order also requires the respondents to divest either specific 
pharmacy assets related to six Revco drug stores in the Binghamton, New 
York, metropolitan area to Medicine Shoppe International, Inc., or its 
subsidiary, Pharmacy Operations, Inc., or, six Revco drug stores in the 
Binghamton, New York, area to a Commission-approved purchaser. The 
respondents have ten days from the date the Order becomes final or four 
months after the Commission accepts the Agreement Containing Consent 
Order for public comment, whichever is later, to accomplish each 
divestiture to the named purchaser. Alternatively, if the respondents 
do not divest to Eckerd or Medicine Shoppe, they must divest to 
alternative Commission-approved buyers three months from the date the 
Order becomes final.
    The proposed Order requires that the assets being divested in 
Virginia and Binghamton, New York, each go to a single purchaser in 
order to ensure competition by recreating a chain of sufficient size 
and coverage to serve as an alternative anchor pharmacy chain for a PBM 
retail pharmacy network.
    Under the proposed Order, if either divestiture is not accomplished 
within the required time period, then the Commission may appoint a 
trustee to divest all 234 Revco drug stores in Virginia and the eleven 
CVS drug stores in the Binghamton, New York, metropolitan area, 
whichever applies. These ``crown jewel'' provisions in the proposed 
Order help ensure that a trustee would be able to accomplish each 
divestiture. The Order also contains an Asset Maintenance Agreement 
that requires CVS, pending divestiture, to maintain the Revco stores 
and assets relating to the Revco stores in the same condition and in 
the same business as they have been operating prior to the acquisition.
    Under the proposed Order, the respondents must submit an initial 
report on compliance with the terms of the Asset Maintenance Agreement 
and on how they intend to comply with the divestiture provisions of the 
proposed Order. In addition, the respondents must provide the 
Commission with a report of compliance with the divestiture provisions 
of the Order within thirty days following the date this Order becomes 
final, and every thirty days thereafter until CVS and Revco have fully 
complied with the divestiture provisions of the proposed Order.
    The purpose of this analysis is to facilitate public comment on the 
proposed Order, and it is not intended to constitute an official 
interpretation of the agreement and proposed Order or to modify in any 
way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 97-14745 Filed 6-5-97; 8:45 am]
BILLING CODE 6750-01-M